Every business today employs some technology, whether it’s a smartphone, tablet, or laptop. Many enterprises also rely on automobiles or heavy gear. Cost is usually a consideration whether purchasing products for the first time or upgrading to newer and more efficient equipment. Whatever kind of equipment, tax law gives a number of write-off benefits that might help you save money. Most people believe that the Section 179 deduction is some obscure or difficult tax code, but as you will see below, it’s really not.
In this post, we’ll discuss the possibility of tax savings and elements to consider to take advantage of the tax benefits Section 179 has to offer.
The Section 179 deduction is one of the most beneficial tax benefits for SMEs. Typically, you cannot deduct the whole cost of company equipment purchased in one tax filing year. Instead, you must distribute the deduction over the asset’s estimated life (as calculated by the IRS) – a process known as depreciation. However, Section 179 permits your company to immediately deduct the entire cost of capital assets instead of depreciating them over their service life. Section 179 deductions allow taxpayers to deduct the costs of certain assets as an expense when they are used in service.
When you acquire property, you often get tax incentives should you use them for commercial use. These are essentially depreciation deductions, which are the costs of purchasing property over a set number of years. Depreciation for an asset is the notion of spreading the cost of utilizing the asset over a number of years by obtaining a tax deduction for a portion of the cost each year. Alternatively, Section 179 enables organizations to deduct the whole cost the first year it is acquired.
Are there any more rules to be aware of? Yes. To qualify for the Section 179 deduction, any purchase—from automobiles to software—must be utilized for company purposes more than 50% of the time. Section 179 qualifying business property is defined as tangible and depreciable personal property purchased to perform a service or operate a company. The new assets must be established and actively utilized for commercial reasons.
Furthermore, keep in mind that if the company property is not employed exclusively for conducting business 100 percent of the time, you can only claim the business deduction for the percentage (more than 50 percent necessary) used for business. Instead of waiting, businesses have exploited Section 179 to acquire the required equipment right now. Most small firms can write the whole cost of eligible equipment on the 2021 tax return. Qualifying equipment of up to $1,000,000 can be written off.
Your asset must meet the following criteria to qualify for a Section 179 deduction:
Most small and medium-sized business owners are eligible for Section 179 deductions if they make qualified purchases such as the following:
Assume you are acquiring a car for both work and personal use. You should keep track of how much you spend on each to see if it qualifies. It doesn’t if you use it for business less than half of the time.
Certain categories of property are not eligible for Section 179 claims.
These are some examples:
The tax code has restrictions that you should be aware of, as per a recent update from the US Internal Revenue Service on the Section 179 deduction. These are some of the limits when using the Section 179 deduction:
Smaller but well-established firms might also benefit from purchasing additional assets to help them develop. Buying items ahead is expensive, but Section 179 deductions make this outlay less onerous. Having the equipment right now means they can start making money and keeping their working capital in good shape. Using Section 179 allows small companies to invest the money they saved via the tax write-off to help them develop in other areas.
Section 179 is evidently meant to work for small and medium-sized firms, as it provides a significant return. Retrieve every single cent you spend and reinvest it straight into your business. Taking full advantage of this great tax law should be a no-brainer as long as your organization qualifies for the Section 179 deductions. Generally, if you are a small company owner searching for additional tax advantages, Section 179 might be beneficial.
Prioritizing your small company taxes can not only save you money in the long term, but it will also help you manage your business more efficiently and successfully. Onesource Technology, your trusted IT provider in Wichita and Kansas City metro areas, is here to help you do just that and will help you maximize your tax savings from Section 179 deductions.
Also, aside from maximizing Section 179 deductions, there is so much you can do at the start of the year to position yourself and your company for economic success. Reach out to us today to learn more and take advantage of Section 179 and everything it has to offer.
Thanks to Holden Watne with GenerationIX in Los Angeles for his help with this article.